Chicago Sales Tax Rate Increases

June 29, 2005

The sales tax rate in Chicago increases a quarter-point to 9 percent starting July 1. The Chicago Tribune explains:

Shopping in Chicago is about to get more expensive. On Friday the city’s sales tax–already one of the highest among major U.S. cities–gets hiked by a quarter of a percentage point to 9 percent. Civic boosters worry that the change will hurt retailers, particularly those in city neighborhoods bordering the suburbs. Oak Brook, Schaumburg and Skokie, the homes of top-shelf shopping malls, are among the suburbs where sales taxes will be less than for city merchants come July 1.

A modest increase of a quarter point might not drastically alter the shopping habits of Chicago residents, as the cost of shopping in other places can mitigate the effects of buying in lower tax areas. The Tribune article continues:

Rather than travel to a different store and pay a little less, they’d rather shop in their own area. It wasn’t enough of a difference. Why pay extra in gas to pay a little less in tax?

The reluctance of consumers to incur the cost of shopping in areas farther from home likely helped localities with high sales taxes avoid large sales decreases in the past. However, tax-free internet shopping is reducing the cost of purchasing products outside of a person’s locality. Therefore increasing sales tax rates are more likely to drive consumers to the internet. See the Tax Foundation’s new paper by Dr. Richard Wagner, PhD about how consumers alter behavior in a high-tech market.

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